What is a Perkins loan?

The Perkins loan is a needs-based student loan offered by your college or university and backed by the U.S. government.

Zack Sigel 1600

Zack Sigel

Published April 24, 2019

A federal Perkins loan is a type of student loan offered by your university and backed by the U.S. government. As need-based financial aid, the Perkins loan has a flat-rate interest rate of 5%. The loan is paid by the Department of Education while you’re in school and for nine months after you graduate, after which it becomes your responsibility.

While many college graduates currently pay Perkins loans, no new Perkins loans have been issued since June 30, 2018, after funding for the program was canceled by Congress in 2017.

Repayment on Perkins loans is deferred, which means that you don’t need to pay if certain conditions are met. Those conditions include enrolling in school on at least a half-time basis, serving in the military, and unemployment.

When it was possible to get a Perkins loan, how much you could borrow depended on your financial situation and how much your university was willing to lend you. The most recent Department of Education regulations capped Perkins loan distributions at $5,500 for undergraduates and $8,000 for graduates.

In this article:

How to apply for a Perkins loan

Although Congress canceled funding for Perkins loans, it also has the ability to restore funding for them in the future. In that case, you may be able to apply for a Perkins loan along with your other financial aid options.

In the past, students needed to fill out the Free Application for Federal Student Aid (FAFSA) to report their household income. Because financial aid is based in part on the student’s needs, FAFSA is needed to make a determination on the student’s eligibility for each type of financial aid.

After your FAFSA documentation is submitted, you’ll receive a financial aid reward letter from your college or university. This letter will list the financial aid available to you, including student loans and scholarships. When it was possible to get a Perkins loan, it would have been listed among the other student loan options if the school offered it.

To receive the loan money, you need to sign an agreement with the loan holder, which is called a promissory note. A promissory legally commits you to repaying the debt.

There are no fees associated with taking out a federal Perkins loan. (Other types of federal student loans may have certain fees, assessed as a percentage of the loan principal.)

Who’s eligible for a Perkins loan?

When Perkins loans were available, they were issued only to people who met certain qualifications. While the Department of Education doesn’t use an income cut-off to determine eligibility, your financial aid award will be lower than that of a student whose family earns less than yours.

The following other characteristics must apply:

  • You must be a citizen, have a Social Security number (with some exceptions), and, if you’re male and between age 18 and 25, be registered with the Selective Service
  • If you’re not a citizen, you must be a noncitizen U.S. national, permanent resident, or a documented immigrant
  • Enroll in school half time or full time, as a regular student in an eligible degree

How to pay a Perkins loan

As with all types of loans, the Perkins loan must be repaid. You’ll make payments that chip away at both the interest and principal until the loan is paid off, canceled, forgiven, or discharged.

The federal Perkins loan is different from other student loans in that you make payments to your college or university, usually through a third-party loan servicer. If you’re not sure who services your Perkins loan, talk to your school’s office of financial aid.

If you have other federal or private student loans, your Perkins loan may not be listed among them when you go to pay those loans.

In fact, your federal student loans may be serviced by a government contractor, your private student loans may be serviced by a completely different company, and your Perkins loan may be serviced by your university or yet another company contracted by the university.

For that reason, you’ll need to log into different websites for each of your loan handlers, and the loans may even have different due dates.

Repayment for Perkins loans works a little different than other loans because payment is deferred, based on your circumstances.

Perkins loan deferment

You may not need to make payments toward the federal Perkins loan if any of the following apply to you:

  • You’re still enrolled in school, in either a half-time, full-time, or a graduate fellowship program
  • You graduated from school, before the nine-month initial grace period has passed
  • You’re unemployed or undergoing economic hardship
  • You’re in the military, whether on active duty or not
  • You’re in the Peace Corps
  • You have a disability but are getting rehabilitation treatment

Some types of situations have maximum deferment periods. For example, deferment based on military status may be unlimited if you’re on active duty, but it’s limited to three years if you’re not on active duty.

If your deferment isn’t automatic, you may need to apply for it directly with the loan holder, which in most cases is your school. You may also be eligible for a postdeferment grace period of six months after you’re required to make your first payment.

Perkins loans and forbearance

Forbearance allows you to temporarily postpone making payments if you can no longer get deferment. Your loan will continue accruing interest during this time.

What happens if I don’t pay my Perkins loan?

If you don’t pay, your loan will be considered delinquent and your credit score will lower. Be delinquent for too long and you will default on your loans, which is a serious derogatory mark on your credit.

Defaulting on your loan could also cause your wages to be garnished, which means you’ll end up paying anyway. You may also have to pay fees, adding to your loan balance and making it more difficult to pay off.

Income-based repayment of Perkins loans

Federal student loan payments are usually based on your income. If your income has been reduced, you may be eligible to apply for income-based repayment, which could reduce your monthly payment in proportion to your income level.

However, because the 5% interest rate on Perkins loans is comparatively low, you usually can’t use income-based repayment to modify your monthly Perkins loans payments.

If you do want to use this benefit, you’ll need to consolidate the loan under a federal direct consolidation loan, but that could cost you more money in the long run by increasing the amount of time during which you need to pay interest.

Read more about debt consolidation.

Canceling a Perkins loan

If you’re eligible, you may be able to discharge your federal Perkins loan, either because of financial hardship or because you work in a certain profession that provides public services.

The U.S. government offers several options for cancellation or discharge of your Perkins loan. (Other types of federal student loans have other options, including loan forgiveness, although the terms “cancellation,” “discharge,” and “forgiveness” mean virtually the same thing.)

Perkins loan teacher cancellation

If you’re a teacher, you may be eligible to cancel up to 100% of their Perkins loan if you meet all of the following qualifications:

  • You work full time, or, if you work part time, you work at multiple schools during the academic year
  • Your school is either a public school or a private nonprofit school
  • You provide “direct and personal educational services to students”

You also must meet one of the following qualifications based on what you teach:

  • You teach in a school for low-income families
  • You teach special education, or provide one of the following services for students with disability: speech and language therapy; physical, occupational, or recreational therapy; or psychological and counseling services
  • You teach classes on subjects that have a shortage of qualified teachers, including math, science, or bilingual education

You’ll need to have taught for a certain number of years before you can cancel the full loan balance, which means you have to pay the loan during that time. Each year equates to a percentage off the loan, for a full 100% cancellation:

  • First year: 15% canceled
  • Second year: 15% canceled
  • Third year: 20% canceled
  • Fourth year: 20% canceled
  • Fifth year: 30% canceled

Other types of service that qualify for Perkins loan cancellation

If you do certain kinds of volunteering or work in public service, you also may be eligible for Perkins loan cancellation. Your work must fall under one of the following categories:

  • Education: early-childhood education provider; librarian at a low-income school (if you have a master’s degree); faculty member at a tribal university
  • Military: service in an HFP/IDP (hostile fire/imminent danger pay) area
  • Medicine: nurse; medical technician; speech pathologist at a low-income school (if you have a master’s degree); early-intervention provider
  • Civil: Law enforcement officer; firefighter; public defender
  • Child- or family-services agency employee
  • Volunteering: Peace Corps; AmeriCorps VISTA

The rate of cancellation is similar to that outlined for teachers in the previous section, with some professions allowed to cancel 100% of their Perkins loan while others may only cancel between 50% and 70% of their loan.

Perkins loan discharge

The Department of Education also allows a federal Perkins loan to be fully discharged in the following situations:

  • The borrower dies
  • The borrower suffers a total and permanent disability
  • The borrower’s school closed down before he or she could complete his or her education
  • The borrower files for bankruptcy

What is a Perkins loan exit interview?

For many types of federal student loans, including Perkins loans, you’re required to undergo an exit interview or exit counseling when you graduate from school, drop out, transfer to another school, or transition to less than half-time enrollment.

During the exit interview, your college or university will inform you of obligations and rights: how to repay the loan, how to defer the loan, and whether you qualify for cancellation or discharge of the loan.

If you don’t complete exit counseling, some schools may place a hold on your eligibility to register for classes in the future, or to get a copy of your transcripts. The hold will be released after the exit interview is completed.

Policygenius’ editorial content is not written by a certified financial planner or advisor. It’s intended for informational purposes only and should not be considered legal, financial, or investment advice. Consult a professional to learn what financial products are right for you.

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